Investment funds in Sweden: regulatory overview

A Q&A guide to investment funds law in Sweden.

This Q&A is part of the global guide to investment funds. It provides a high level overview of investment funds in Sweden, looking at both retail funds and hedge funds. Areas covered include a market overview, legislation and regulation, marketing, managers and operators, restrictions and requirements, tax and upcoming reform.

For a full list of jurisdictional Q&As visit www.practicallaw.com/investmentfunds-guide.

Contents

Retail funds

1. What is the structure of the retail funds market? What have been the main trends over the last year?

The Swedish funds market is well established and developed. Retail funds are divided into two main categories:

  • Undertakings for collective investment in transferable securities (värdepappersfonder) (UCITS).

  • Alternative investment fund (AIF).

Only two types of funds are regulated under Swedish law:

  • UCITS.

  • Special funds (specialfonder) (a legally defined type of AIF).

Both UCITS and special funds are open-ended funds. All AIFs (except for special funds) must be managed by an alternative investment fund manager authorised by either the:

  • Swedish Financial Supervisory Authority (Finansinspektionen) (SFSA).

  • Competent authority of the EEA home member state of the AIF.

In early 2015, approximately 2,500 funds have been reported to the SFSA and are available for investors in Sweden. The total value of managed assets in Sweden is approximately SEK 3.3billion.

UCITS are structured on a contractual basis and cannot be set up as legal entities. UCITS are managed by management companies (legal entities). One management company can manage more than one UCITS. All UCITS are open-ended funds and must be available to the general public without restrictions (an obligation to contract).

AIFs can be structured both on a contractual basis and as legal entities. However, special funds can only be structured on a contractual basis and must be managed by a management company.

The main change in the Swedish fund market during the last few years is the implementation of Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) into Swedish law. The AIFMD has been implemented by the Swedish Alternative Investment Fund Managers Act (2013:561) and the SFSA regulatory codes. The implementation of the AIFMD has had a great impact on the Swedish fund market.

In addition, in 2015, the implementation procedure for Directive 2014/91/EU (UCITS V Directive) will start in Sweden, with an aim to implement the UCITS V Directive in 2016. Key changes in the UCITS V Directive relate to the depository functions, remuneration policies and sanctions. In connection with the implementation of UCITS V, a general overview of the Swedish fund regulations will also be made.

Open-ended retail funds

The two main types of open-ended funds on the Swedish market are:

  • UCITS.

  • Special funds.

Closed-ended retail funds

There is no legal definition of closed-ended funds in Sweden (to avoid any discrepancy with the definition provided by the European Security and Markets Authority). However, funds that are not subject to an obligation to issue and redeem units or shares on the request of the investors can be regarded as closed-ended funds. Special funds can limit the investor's right to invest in the fund (subject to approval by the SFSA) but are still regarded as open-ended funds as they are obliged to enable redemption at least once a year.

Examples of closed-ended retail funds are venture capital funds, real estate funds and infrastructure funds.

Regulatory framework and bodies

2. What are the key statutes, regulations and rules that govern retail funds? Which regulatory bodies regulate retail funds?

Open-ended retail funds

Regulatory framework. The main provisions regulating open-ended retail investment funds are the:

  • Swedish Investment Funds Act (2004:46) (for UCITS only).

  • Swedish Alternative Investment Funds Managers Act (2013:561).

  • Swedish Financial Supervisory Authority (SFSA) regulatory codes and guidelines.

Regulatory bodies. The regulatory authority for all funds is the SFSA.

Closed-ended retail funds

Regulatory framework. The same rules apply as for open-ended retail funds (except for the Swedish Investment Funds Act which only regulates UCITS) (see above).

Regulatory bodies. See above.

 
3. Do retail funds themselves have to be authorised or licensed?

Open-ended retail funds

To be sold to investors in Sweden, collective investment schemes (UCITS), must be:

  • Authorised by the Swedish Financial Supervisory Authority (SFSA) if the management company is domiciled in Sweden; or

  • Notified to the SFSA under the UCITS passporting scheme.

An application to the SFSA must include the following documents:

  • Corporate documents for the management company, for example:

    • the board resolution approving the application; and

    • the certificate of incorporation showing a registered share capital of at least EUR125,000; and

    • a copy of adopted articles of association.

  • Copies of outsourcing agreements (if any).

  • Business plan.

  • Fund rules for each fund to be managed by the management company.

  • Draft prospectus and draft key investor information documents (KIID) for each fund (in Swedish).

  • Certain information in case of the management of feeder funds (funds that are specifically created to invest in a single private equity fund).

The SFSA has five months to consider an UCITS application subject to payment of the application fee.

In general, the same rules apply for special funds (see below for authorisation of managers of special funds).

UCITS established in the European Economic Area (EEA) can be recognised for sale in Sweden. The process is carried out regulator-to-regulator using a streamlined process introduced under the UCITS IV Directive. The home state regulator must be provided with the following documents for the fund to be recognised:

  • Full prospectus.

  • Latest annual report and subsequent bi-annual report (if any).

  • KIID (in Swedish).

  • Information on the agent in Sweden (for example, paying agent) to make payments and redeem units in Sweden and to provide information to the Swedish investors.

No fees are payable to the SFSA for EEA UCITS and the UCITS can be marketed to investors in Sweden as soon as it has been informed by the home state regulator that the SFSA has received the notification.

AIFs available to non-professional investors can be marketed in Sweden subject to authorisation of the AIF manager by the SFSA. The same applies for foreign AIFs to be marketed to Swedish non-professional investors. EEA AIF managers marketing AIFs only to professional investors can benefit from the European passporting scheme (corresponding to the provisions for EEA-based UCITS).

Closed-ended retail funds

The same rules apply as for open-ended retail funds (except for the Swedish Investment Funds Act which only applies to UCITS) (see above).

Marketing

4. Who can market retail funds?

Open-ended retail funds

Once a fund or the fund manager, is authorised or recognised by the Swedish Financial Supervisory Authority, the fund can be marketed freely to the public either through the fund operator or through a distributor or another authorised person.

Closed-ended retail funds

The same rules apply as for open-ended retail funds (except for the Swedish Investment Funds Act) (see above).

 
5. To whom can retail funds be marketed?

Open-ended retail funds

Authorised or recognised UCITS can be sold to all categories of investors in Sweden. Only AIFs that are special funds (or EEA AIFs equivalent to special funds) and AIFs admitted to trading on a regulated market (or if outside the EEA, a market equivalent to a regulated market) can be freely sold to all categories of investors in Sweden. AIFs can be marketed to non-professional investors if the following applies:

  • There is no right to redemption for a period of five years.

  • The AIF invests in companies not listed but with the aim to gain control.

  • The investment amount is at least EUR100,000.

Non-professional investors must sign a separate document confirming their awareness of the risks involved with the investment.

Closed-ended retail funds

The same rules apply as for AIFs (see above).

Managers and operators

6. What are the key requirements that apply to managers or operators of retail funds?

Open-ended retail funds

The management company managing the UCITS or the special fund will need to be authorised with the Swedish Financial Supervisory Authority (SFSA) as they are not legal entities. Only authorised fund companies are allowed to manage UCITS and special funds.

AIF managers must be authorised to market and sell AIFs to Swedish investors and must also have a licence for portfolio management and risk management. An AIF manager is not allowed to conduct any business other than managing AIFs, portfolio and risk management. Swedish AIF managers must:

  • Have their headquarters in Sweden.

  • Meet capital requirements.

  • Ensure that the qualified owners of the manager are suitable to have a material influence over the management.

  • Ensure that the management have sufficient professional knowledge and general suitability to manage the AIF manager. If the AIF manager is a limited liability company, the board must be composed of at least three board members and the company must appoint a managing director (the managing director and the chairman cannot be the same individual). All other AIF managers must have at least three members of the management.

A foreign EEA AIF manager can, subject to SFSA authorisation, manage Swedish special funds. There are no authorisation requirements for EEA AIF managers to manage other Swedish AIFs. However, the home state regulator must be notified. Non-EEA managers can, subject to SFSA authorisation, manage Swedish AIFs.

Closed-ended retail funds

The same rules apply as for AIFs (see above).

Assets portfolio

7. Who holds the portfolio of assets? What regulations are in place for its protection?

Open-ended retail funds

Swedish UCITS and special funds are not legal entities, and so the assets must be held by a depository (förvaringsinstitut). The management company (managing the UCITS/special fund) must enter into a written agreement (to be governed by Swedish law) with a depository (the appointed depository can hold assets of more than one UCITS/special fund) including specific reference to the funds covered by the agreement. The agreement must include provisions regarding the parties' (the management company and the depository) exchange of information and the co-operation required under the applicable law and regulations. The depository must have its seat in Sweden (or if the depositary is a branch, in an EEA member state).

The depositary must execute the management company's decisions regarding the UCITS/special fund (unless such decisions are in breach of applicable law and regulations and/or the fund rules). The depository must also receive and take care of the fund's assets and ensure that:

  • Sale and redemption of the fund units comply with the applicable law and regulations and the fund rules.

  • The basis of the value of the fund units comply with applicable law and regulations.

  • The fund's assets are immediately transferred to the depositary.

  • The methods used are in accordance with the applicable law and regulations and the fund rules.

Only banks and credit institutions can act as depositories for UCITS and special funds.

A depository must be appointed for each open-ended AIF and have its seat in the home state of the relevant AIF (or in case of a non-EEA AIF, in the same home state as the AIF manager). Otherwise, the same requirements for depositories apply for UCITS.

Only credit institutions, investment management companies (authorised to hold financial instruments) and institutions being authorised to act as a depository for investment funds can act as depositories for open-ended AIFs. AIF managers cannot act as depositories.

Closed-ended retail funds

The same rules apply as for AIFs (see above).

In addition, for certain closed-ended AIFs (with limited rights for unit holders to redeem the fund units or shares, certain investment policies and target investments) individuals or legal entities can be appointed depositaries if:

  • The depository service is part of its business and the business requires registration under the applicable law and regulations; and

  • There are financial professional guarantees to uphold depository requirements and the requirements can be effected in an efficient manner.

Legal fund vehicles

8. What are the main legal vehicles used to set up a retail fund and what are the key advantages and disadvantages of using these structures?

Open-ended retail funds

Legal vehicles. Funds in Sweden can be set up on a contractual basis (UCITS and special funds) or with a corporate structure.

Investors in funds set up on a contractual basis own fund units (fondandelar). However, the ownership is limited to rights to payment of dividends (if any) and a right of redemption. Investors in funds set up with a corporate structure own shares (if the fund is a limited liability company) or units (if the fund is a limited partnership).

Advantages. The funds can issue units to investors without limitation.

Disadvantages. The funds can be less marketable in other jurisdictions. However, under Swedish law, a limited liability company has a registered (restricted) share capital and number of shares that make it impractical and unsuitable for open-ended funds.

Closed-ended retail funds

Legal vehicles. Closed-ended retail funds can be structured both on a contractual basis and with a corporate structure.

Advantages. The same advantages apply as for open-ended funds (see above).

Disadvantages. The same disadvantages apply as for open-ended funds (see above).

Investment and borrowing restrictions

9. What are the investment and borrowing restrictions on retail funds?

Open-ended retail funds

UCITS. The investment and borrowing powers for UCITS funds are set out in the UCITS Directive and are implemented in the Swedish Investment Funds Act. UCITS are permitted to invest up to 100% of its portfolio in the following asset classes:

  • Transferable securities.

  • Money market instruments.

  • Cash or near cash (for example bank deposits and treasury bills).

  • Collective investment schemes.

  • Financial derivative instruments that meet certain criteria.

UCITS are subject to certain requirements including the spreading of risk and risk concentration. The main spreading of risk requirements for UCITS are as follows:

  • In general, transferable securities and money market instruments must be admitted to trading on a regulated market (or the equivalent outside the EEA) or be guaranteed by an EEA state or authority, the European Central Bank, the EU, the European Investment Bank or an international organisation in which at least one EEA member state is a member.

  • Up to 10% of the UCITS' assets can be invested in transferable securities and money market instruments that do not comply with the point above.

  • Up to 5% can be invested in transferable securities or money market instruments issued by a single body. The 5% limit can be raised to 10% for 40% of the portfolio. The 10% limit can be raised to 20% (or 35% subject to approval by the regulator) where a UCITS replicates an index recognised by the regulator.

  • Up to 20% can be invested in deposits with a single body.

  • Exposure to any counterparty in a derivatives transaction cannot exceed 5% (except where the counterparty is an approved bank where the exposure can be up to 10 %).

  • No more than 20% can be invested in transferable securities and money market instruments issued by the same group of companies.

  • No more than 20% can be invested in units of any one collective investment scheme.

  • No more than 35% can be invested in government or public bonds or other debt securities unless certain provisions are complied with including:

    • only 30% of the scheme property can be invested in a single issue;

    • the securities must come from six different issuers; and

    • the names of the issuers must be set out in the prospectus.

The management company managing the UCITS can borrow up to 10% of the fund's value on any day on a temporary basis.

Special funds. Swedish special funds (being AIFs) are in general subject to the same requirements (including requirements on spread and concentration) as UCITS. However, the Swedish Financial Supervisory Authority can authorise deviations from these requirements.

The management company managing the special fund can borrow up to 10% of the fund's value on any day on a temporary basis.

Other open-ended funds. There are no legal or regulatory investment restrictions for AIFs that are not special funds. The fund manager must determine the investment strategy that it intends to pursue.

Closed-ended retail funds

There are no legal or regulatory investment restrictions for closed-ended funds. The fund manager must determine the investment strategy that it intends to pursue.

 
10. Can the manager or operator place any restrictions on the issue and redemption of interests in retail funds?

Open-ended retail funds

UCITS. Units in UCITS must be issued to the general public (an obligation to contract). A UCITS fund rules can include provisions that:

  • The fund closes for further subscription under certain circumstances. The circumstances must be specifically stated and determined on objective grounds.

  • If a valuation of the fund assets cannot be performed in a way that secures all unit holders equal rights due to extraordinary circumstances, the fund will be closed (for both subscription and redemption of units).

In addition, subject to the approval of the regulator, a fund can be wound up if there are no unit holders or assets in the fund.

Units in UCITS must be redeemed immediately on the request of the unit holder, subject to the available assets of the fund. If assets for redemption need to be acquired through a sale of fund property, the sale and redemption must be effected as soon as possible. The management company can elect to suspend the sale and redemption of fund units (in exceptional circumstances and if required in the unit holders' best interest).The suspension must be notified to the regulator and the unit holders without delay. The management company must notify the regulator as soon as the reasons for the suspension have ceased.

Special funds. The fund rules of a special fund can, subject to the approval of the regulator, contain limitations on the subscription of fund units and the category of investors that can subscribe for units. However, the fund must permit redemption of units at least once a year.

Open-ended AIFs. Managers can restrict the subscription of shares/fund units to investors whose characteristics are defined in the fund rules and/or prospectus. The fund must permit redemption on a regular basis.

Closed-ended retail funds

A closed-ended fund cannot issue any new shares after the initial share capital has been fully paid up and all shares in the fund have been subscribed for, unless there is an increase of the share capital (through an issue of new shares). Redemption of shares/fund units can be restricted as provided in the fund's fund rules.

 
11. Are there any restrictions on the rights of participants in retail funds to transfer or assign their interests to third parties?

Open-ended retail funds

There are no restrictions on the rights of participants in UCITS funds or special funds to transfer or assign fund units to third parties.

An AIF manager can impose transfer/assignment restrictions of units/shares in the AIF in the fund rules.

Closed-ended retail funds

A manager of a closed-ended fund can impose transfer/assignment restrictions of units/shares in the AIF in the fund rules.

Reporting requirements

12. What are the general periodic reporting requirements for retail funds?

Open-ended retail funds

Investors

UCITS and special funds. Annual reports and bi-annual reports must be available to investors and must be provided on request to investors at no cost. The annual report must be available within four months of the expiry of the financial year and the bi-annual reports (for the first six months of the financial year) must be available within two months of the expiry of that half of the year.

AIF. AIF managers must publish annual reports for each AIF it manages within six months of the expiry of the financial year.

Regulators

UCITS and special funds. Annual reports and bi-annual reports must be submitted to the Swedish Financial Supervisory Authority immediately on completion.

AIF. No reporting requirements.

Closed-ended retail funds

Investors. The same rules apply as for AIFs (see above).

Regulators. The same rules apply as for AIFs (see above).

Tax treatment

13. What is the tax treatment for retail funds?

Open-ended retail funds

Funds. Investment funds are exempt from taxation and are not liable to Swedish income tax, as from 1 January 2012. An equivalent tax is levied at unit-holder level.

Resident investors. A standard income tax is paid on fund units, as from 1 January 2012. The tax is levied as a capital gains tax based on a standard rate income corresponding to 0.4% of the value of the fund units as of 1 January each year. The unit holder will pay 30% capital gains tax on the standard rate income. The tax levied will amount to 0.12% of the value of the fund units and resident investors were charged for the first time through the income statement in 2013. Unit holders, who are individuals resident in Sweden, or the estate of a deceased Swedish resident, pay 30% income tax on dividends.

Swedish income tax is levied on capital gains and dividends from all types of fund units held by Swedish residents at 30%. The gain is taxed regardless of how long the units have been held.

A new investment savings account (investeringssparkonto) (ISK) was introduced as of 1 January 2012. Assets allowed in the account are financial instruments listed on a regulated market and all kinds of funds (whether they are listed or not). Capital gains and dividends are not taxed within the ISK. Instead, a standard income (based on the government bond yield from the November of the previous year) will be levied as a capital gain. The standard income is taxed at a rate of 30%. The tax on ISK is 0.495% of the average capital at the end of each quarter for the income year of 2012. The tax must be paid by the account holder together with other tax on the income tax statement. Withdrawals from the ISK are not taxed.

Non-resident investors. Individuals resident abroad, or foreign legal entities, pay either 30% Swedish withholding tax, or the lower tax rate specified in double taxation agreements between Sweden and the country in question.

Closed-ended retail funds

Funds. The same rules apply as for open-ended retail funds (see above).

Resident investors. The same rules apply as for open-ended retail funds (see above).

Non-resident investors. The same rules apply as for open-ended retail funds (see above).

Quasi-retail funds

14. Is there a market for quasi-retail funds in your jurisdiction?

There is no market for quasi-retail funds in Sweden.

Reform

15. What proposals (if any) are there for the reform of retail fund regulation?

On 15 April and 23 July 2014, Directive 2014/91/EU on undertakings for collective investment in transferable securities (UCITS V Directive) was adopted by the European Parliament and the EU Council (see Question 1).

 

Hedge funds

16. What is the structure of the hedge funds market? What have been the main trends over the last year?

The structure of the hedge funds market is the same as for retail funds (see Question 1).

Regulatory framework and bodies

17. What are the key statutes and regulations that govern hedge funds in your jurisdiction? Which regulatory bodies regulate hedge funds?

Regulatory framework

The same rules as for retail funds apply (see Question 2).

Regulatory bodies

The same rules as for retail funds apply (see Question 2).

 
18. How are hedge funds regulated (if at all) to ensure compliance with general international standards of good practice?

Swedish hedge funds (being special funds) are regulated under the Swedish Alternative Investment Fund Managers Act (SAIFM). Hedge funds must comply with the same diversification rules and asset restrictions as for retail funds (see Question 9).

Risk

Hedge fund managers are required to uphold a system for risk management. The system function must be separated from the fund management function.

Valuation and pricing

The SAIFM contains rules on valuation and pricing.

Systems and controls

The SAIFM contains rules on the fund manager's internal organisation, including codes of conduct, internal control, operation and management of information systems.

Insider dealing and market abuse

The hedge fund manager is subject to the Swedish rules on insider dealing and market abuse.

Transparency

Hedge funds (and their managers) must report to its investors and the Swedish Financial Supervisory Authority in the same way as retail funds (see Question 12).

Money laundering

Hedge fund managers are subject to the Swedish laws and regulations on the prevention of money laundering and terrorist financing.

Short selling

Swedish rules for the notification of short selling are in line with the EU regulation on the notification of short positions in listed companies (Regulation (EU) 236/2012). The disclosure obligation applies to net short positions related to shares admitted to trading on a regulated market or on a multilateral trading facility (MTF).

The Swedish Financial Supervisory Authority (SFSA) has prepared forms to be used to make a notification of a short position to the SFSA.

Marketing

19. Who can market hedge funds?

The same rules as for retail funds apply (see Question 4).

 
20. To whom can hedge funds be marketed?

The same rules as for retail funds apply (see Question 5).

Investment restrictions

21. Are there any restrictions on local investors investing in a hedge fund?

In general, there are no restrictions (subject to the manager and the hedge fund being authorised with the Swedish Financial Supervisory Authority (see Questions 2 and 3).

Assets portfolio

22. Who holds the portfolio of assets? What regulations are in place for its protection?

The same rules as for retail funds apply (see Question 7).

Requirements

23. What are the key disclosure or filing requirements (if any) that must be completed by the hedge fund?

The same rules as for retail funds apply (see Questions 3 and 12).

 
24. What are the key requirements that apply to managers or operators of hedge funds?

The same rules as for retail funds apply (seeQuestion 6).

Legal fund vehicles and structures

25. What are the main legal vehicles used to set up a hedge fund and what are the key advantages and disadvantages of using these structures?

The same applies as for retail funds (see Question 8).

Tax treatment

26. What is the tax treatment for hedge funds?

Funds

The same rules apply as for open-ended retail funds (see Question 13).

Resident investors

The same rules apply as for open-ended retail funds (see Question 13).

Non-resident investors

The same rules apply as for open-ended retail funds (see Question 13).

Restrictions

27. Can participants redeem their interest? Are there any restrictions on the right of participants to transfer their interests to third parties?

Redemption of interest

The same rules apply as for retail funds (see Question 10).

Transfer to third parties

The same rules apply as for retail funds (see Question 11).

Reform

28. What (if any) proposals are there for the reform of hedge fund regulation?
 

Online resources

Swedish Parliament

W www.riksdagen.se

Description. The Swedish Parliament official website is responsible for publishing all Swedish legislation and inquiry reports and bills. Some acts have been translated into English but the English version has no legal effect, is not binding and is only provided for information purposes.

Swedish Financial Supervisory Authority (SFSA)

W www.finansinspektionen.se

Description. The Swedish financial markets regulator. Up-to-date information is published on the website.

Swedish Investment Fund Association

W www.fondbolagen.se

Description. This was founded in 1979 and represents approximately 90 % of the net fund assets held in the Swedish market.



Contributor profiles

Caroline Wikström, Principal Associate

Eversheds Advokatbyrå

T +46 8 545 322 00
F +46 8 545 322 01
E caroline.wikstrom@eversheds.se
W www.eversheds.se

Professional qualifications. Attorney, Sweden, 2009

Areas of practice. Financial institutions, investment funds and asset management, general corporate law.

Languages. Swedish, English

Conny Tranberg, Partner

Eversheds Advokatbyrå

T +46 8 545 322 00
F +46 8 545 322 01
E conny.tranberg@eversheds.se
W www.eversheds.se

Professional qualifications. Attorney, Sweden, 1994

Areas of practice. Corporate tax, tax planning and consultancy; corporate; financial services and markets regulation.

Languages. Swedish, English


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